The Balkanization of the Internet Could Hurt the Online Economy

The fragmentation of the internet may limit cybercrime but it will also harm the business of web hosting companies and other web services providers.

The internet is an inherently borderless system that resists the imposition of artificial limitations on the flow of data. Where data goes is determined by systems that discover the best possible route for a packet to travel between its source and destination, without concern for which nations those packets travel through. That fluidity is one of the drivers of the online economy.

Without artificial barriers it doesn’t matter whether you’re doing business with a person in India or in Indiana. It doesn’t matter whether data is stored in the Philippines or in Philadelphia. And, it doesn’t matter where a web hosting company is based physically, their potential market is global and they can source their bandwidth and locate their servers wherever is economically advantageous.

At least, that’s how it is now, but it may not stay that way forever. Under pressure from online crime and government spying, many nations are considering implementing internal internets that would prevent information from freely flowing around the globe. The German state-owned telco Deutsche Telekom is pushing for the implementation of a “German internet” to prevent data from falling into the wrong hands. The Brazilian government is in the process of enacting laws that would force companies to store “Brazilian data” within the country.

In an interview with Bloomberg, Eugene Kaspersky, CEO of the Russian online security company, Kaspersky Labs, warns that the internet is in danger of fragmentation, which will significantly diminish opportunities for international investment and shrink the global market for internet services.

“I’m afraid that this Snowden case will force governments, nations, to develop their own internet segments for governments and for enterprises,” Kaspersky said. “This is fragmentation of the internet, and I’m afraid that it will damage the global network because the global internet companies will have fewer resources, less investment.”

In the video above, Kaspersky makes the somewhat unlikely claim that paper may make a comeback as companies seek to protect their data from competitors and industrial espionage. While its fanciful to suppose that we’ll be turning back the clocks to the Victorian era, where clerks processed mounds of paper and couriers guarded sealed envelopes as they carried data around the world, it’s an extreme illustration of a problem that may constrict the growth of internet services companies.

The cleaving of the internet will prevent businesses large and small from growing at the same rate; the platforms we’ve come to rely on may wither from globe spanning seas of data to geographically limited fishbowls. The internet that has become the economic powerhouse of the nation and the world may not exist in the same form in the future.